A mortgage broker was fined today for selling insurance that customers might never have been able to claim on and for encouraging people to remortgage even if it meant incurring high fees.
City watchdog the Financial Services Authority (FSA) fined Hadenglen Home Finance #133,000 and its chief executive Richard Hayes #49,000 for having inadequate systems and controls in place when recommending remortgages and payment protection insurance (PPI).
It is the first time the regulator has fined both a firm and its chief executive for failings relating to remortgaging and PPI.
The FSA said Mr Hayes had implemented a sales strategy which failed to take into account whether people who were remortgaging would be hit with early redemption charges and other fees.
As a result people remortgaging incurred "significant charges" that may not have been in their best interests.
At the same time he failed to ensure that sufficient information was gathered from customers being sold PPI, which covers debt repayments if people are unable to work or lose their job, and did not take into account the cost of this cover when recommending it.
This meant customers were advised to buy a product that may not have been suitable for their needs or which they would never have been able to claim on.
Overall the regulator said the group had exposed 2,000 remortgage customers and 1,900 PPI ones to an unacceptably high risk of being sold a product that was not suitable.
Hadenglen, which is based in Ashby-de-la Zouch in Leicestershire, typically arranges remortgages for customers with impaired credit ratings, many of whom would find it difficult to borrow from traditional lenders.
A significant proportion of its customers had bought their homes under the Government’s right to buy scheme.
The FSA said it had also found serious weaknesses in a number of other areas including training and senior management oversight of the business.
The problems were discovered during the second phase of the FSA’s work on the sale of PPI in May last year.
Margaret Cole, FSA director of enforcement, said: "Firms must develop and maintain systems and controls that minimise the risk of providing unsuitable advice to customers.
"The penalty imposed on Mr Hayes should leave senior management within firms in no doubt that the FSA will hold them to account if they fail to treat their customers fairly."
The regulator said the fines could have been as high as #190,000 for Hadenglen and #70,000 for Mr Hayes had they not agreed to settle at an early stage of the investigation.
They are also contacting customers and paying them redress where appropriate, and they have agreed to carry out a review of their systems and controls, with external consultants advising on the process.
Hadenglen declined to comment on the fines.